Monthly Archives: February 2015

Post navigation

The Forbes piece linked below contains some of the worst “political economy” analysis that I have ever seen because the author — John Tamny — uses a sanitized, laboratory approach to his take on economic theory and ignores the cultural and political realities on the ground. This is important because his Forbes byline states that he is “political economy editor at Forbes.” He is also “senior economic adviser” to Toreador Research & Trading.

In addition, he cites a “conservative” magazine piece whose premise he spends his article attempting to discredit, but doesn’t refer to it by name, or provide a link to it. This is a sign of insecurity as he appears to not want readers to consider the other article on their own merits.
Specifically, Tamny cites the following from the article in question — “A common currency for the European Union was always a bad idea, because it required a common monetary policy for very different economies.” This statement is correct for many reasons beyond the one cited on a “common monetary policy.” Yet Tamny claims that books will be written refuting its thesis — meanwhile Rome (the Euro currency) continues to burn.

Wheeling West Virginia

So who are the grownups at Forbes that allow such nonsense to be published under its name?
The only article I could find that appears to fit Tamny’s description is from Mike Shedlock of Townhall.com and Sitka Pacific Capital Management, though the two articles I found and had time to review (referenced below) do not contain the quote in question — but Shedlock is prolific and so has many articles posted. Shedlock writes about economic issues, and has written extensively on Greece lately. His column from Jan 4th is cited below, which at least is on point regardless of whether it is the specific article to which Tamny refers, and I’ve posted another Shedlock column dated Feb 19th that lays out the economic reality on the ground in Euroland about the Greek situation.
Tamny misses the real issues with the Euro currency and Greece. First, he compares the Euro currency block to the US and the dollar, using West Virginia and NY as proxies for Greece and Germany. This is absurd as the US is one country with a single overall culture comprised of several subcultures that our economy, body politic, and system of government have always incorporated. Hence, the fact that WV cannot “compete” with NY is irrelevant, because it doesn’t have to in the general sense of the term. That states do compete for jobs among companies is another matter. In short, whatever the cultural differences are between WV and NY are in no way comparable to those between Greece and Germany, or more broadly between southern Europe and northern Europe. ( Also, NY and WV have been in a currency union since 1860! )

Second, Tamny ignores the reality pointed out by Shedlock, namely, that no rational person believes that Greece will ever be able to pay its $272 billion in debt to Euro countries or EU financial institutions (Oops alert for Tamny/Toreador clients, some of which might have bought Greek debt). Hence, they will default eventually — it’s only a question of time –, and in fact the EU/Euro block has already granted a partial default by extending the debt owed to certain EU institutions and/or Euro-block countries and reduced payments some time ago (and this week they have reached another four month extension assuming that Greece provides a credible response on its budget, but this only delays the inevitable).

In sum, politically and economically Greece cannot repay the vast bulk of its debt — or will not incur the immense pain required to do so –, and politically Germany cannot allow Greece any more leeway. The Germans are already on the hook for roughly 73 billion Euros in Greek debt — direct loans including 15 billion Euros and guarantees for the rest (see second Shedlock link, which cites a paper on the details of Greek debt, also linked). They are not in the mood to get snookered again.

Third, Tamny misses the real point about a Greek Euro withdrawal, re-adoption of the drachma, and default/devaluation. Yes, it might be true that Greece would have to pay interest on any future debt incurred in Euros or dollars, as perhaps Argentina did when it reentered the international bond markets several years after defaulting in 2002. Nonetheless, as with Argentina, Greece will still be able to start anew after defaulting on, say, 80% of its $272 billion in Euro debt.

Regardless of Argentina’s problems, it nonetheless got away with defaulting and is back to borrowing money from international creditors. That the interest on this new debt is paid back in dollars is beside the point. As with a company entering bankruptcy — which is essentially what Greece will be doing at some point — the firm sheds much if not most of its debt, creditors take control of the company, and it reemerges from bankruptcy as a “new” entity with little or no debt. It still might have to pay higher interest rates on newly-incurred debt because of its reputational problems, but it has new life and can gain sustenance with new debt even at higher interest rates.
Finally, by ignoring the cultural/political issues involved in the Greek/Euro mess, Tamny misses the bigger and more relevant points – 1) Greece cannot compete with Germany, et al. — and as noted the WV/NY comparison is inapt; 2) Greece must rebuild its economy the Greek way, it cannot do so the Germany/Northern Euro way; 3) dropping the Euro and readopting the drachma is the only way that Greece can achieve point #2; 4) a Euro Grexit is likely to be the first finger out of the Euro dike. Consequently, once other similarly-situated countries see that the world doesn’t end after a Greek Euro withdrawal, and in fact that economically over time Greece appears to be recovering, such countries will are likely to follow Greece’s example, eg, Portugal, Spain, Italy, etc.

This is the real fear of the EU/Euro-block elites — a Grexit contagion that spreads through Europe thereby destroying the very concept and existence of the Euro currency, which in turn might threaten the very existence of the EU itself — another flawed concept, which the always-prescient George Friedman of Stratfor Global Intelligence explains in a January 11, 2015 article entitled, “Europe Rediscovers Nationalism” (linked below).

So it is Tamny that needs to “get over it” — Greece is going to pull out of the Euro, and this will be a real and substantive withdrawal that will shakeup the entire Euro block and possibly the EU — regardless of the fact that Greece will have to pay the interest on future debt in Euros (as long as that currency exists, which I don’t think will be too long) or dollars.

Tamny, as an economic advisor to a research firm with Wall Street clients, is indirectly on the payroll of various Wall Street financial institutions or companies with a vested interest in keeping the public on the “Euro is a great idea” theme — which like most issues involving international business, benefits chiefly the big business interests, and in this case, Germany and other leading Euro-block countries, at the expense of the countries with weaker and less developed economies.

It may not be a coincidence that in the summer of 2014 the Forbes family sold a majority stake in Forbes Media to a Hong Kong investment group Integrated Whale Media — read Chinese. It would therefore be ( perhaps ) unwise any longer to count on Forbes being the necessarily-free market media outlet providing sound economic/political analysis that it used to be. A link describing this transaction is included below.
Links

The Lenten season has begun. It will terminate with one of the oddest days of the Irish Year, Good Friday. One of only two days a year when the general sale of alcohol is forbidden. The pubs will be shut and the beer and wine displays in supermarkets will be covered over; shrouded from view as once the statues and icons in our churches were.

It is a day that challenges the Tory libertarian. As a rule I reject the notion that the government regulate in any way the sale of drink. I would abolish licensing laws and let bars open and close as they please and adult citizens drink where and when they wish. Obviously I am cheerleading those who want to see this anachronistic ban stricken from the law.

But I am not. The Tory part of me likes the local particularness of the thing. I enjoy its eccentricity. I like the fact that it marks us out and in a world of homogenisation it reminds both locals and visitors that this is not England, Oz or the US. It is a reminder and a connection to our past and our identity.

Yet fine and all that may be, is it enough to deny someone who wants to sell and some one who wants to buy the right do so? That I get warm and fuzzies from this custom seems a very thin reason to infringe on the rights of others. The sale of drink is not of itself a harmful activity. That which is not harmful should not be prohibited. That which is not expressly prohibited is permitted.

Say I launch a campaign of suasion and persuade 99% of citizens to my point of view? Are we then justified in denying free action to our fellows on the basis of moral or aesthetic reasons? Does the size of a majority in anyway effect the underlying morality of a prohibition?

Customs and traditions rarely on first interrogation yield powerful rational reasons for their persistence. Can we be justified in defending them through law? How important to the cohesion and success of a society is a set of shared and respected customs? Can this utility be used to defend what is a minor, limited and temporary reduction of individual freedom ?

I am not sure it can but since I favour the Dry Good Friday I will continue to argue that it does. This is I suppose a manifestation of a little and I hope harmless conservatism. After all Freedom cannot be the only value in a free society.

Once, while having lunch in the Red Lion Hotel in Salisbury, I overheard that doyen of Tory back benchers the late John Morrison, aka, Lord Margadale, ( of whom, strangely, no image is available) saying that he thought that Malcolm Rifkind was a potential future leader of the Conservative Party. Since Morrison is widely rumoured to have been responsible for the emergence of Sir Alec Douglas Home as Tory leader in 1963 my ears as they say “pricked up,” and I have always followed Rifkind’s career with interest. And I wondered too whether he would really get to the top of what Disraeli called the greasy pole.

He has occupied many of the great offices of the British state, and has been a sensible voice about foreign policy, whether or not all of his specific judgement have been correct.

.But that was then, and this is now. The recent “sting” carried out by The Daily Telegraph and Channel 4 may not have been very edifying, and may, who knows have been a factor in the resignation of Peter Oborne from the paper, nevertheless the video footage of Sir Malcolm which resulted is absurd, shameful, and idiotic.

It is absurd because anyone who believes that an income of sixty seven thousand pounds year does not really count as a salary has lost that vital link with reality which we all must pray that we maintain. It is shameful because of the casual assumption which it reveals namely that positions of public trust, such as being Foreign Secretary, entitles the holder to exploit the “contacts” he made in the role for personal gain at an exhorbitant price. It is idiotic because only a fool would assume that such an approach of the kind depicted on the video was not either potentially corrupt, or part of a sting as this one turned out to be. John Morrison would have been horrified not merely by the Sir Malcolm’s greed, but also by his stupidity.

Sir Malcolm, and no doubt Mr. Straw too, has asserted that he promised to do nothing which was not within the rules. This may be true. But it is hardly a sufficient defence. If Sir Malcolm wishes to reclaim his honour he has but one choice, and that is to leave Parliament forthwith even if that subjects his party to the inconvenience of a bye election. John Morrison was wrong. Sir Malcolm failed to reach the top of Disraeli’s greasy pole; but he got high enough up. He now has only one way of ensuring that he does not end up a pathetic figure in the mud at the bottom of it!

Smoking is very bad habit indeed. It causes all kinds of harm as well as being smelly and unpleasant. Speaking as an ex smoker, or a smoker in recovery, I know how hard a habit it is to kick. Moreover these days a twenty a day man is shelling out three and a half thousand euro a year on nicotine.

The Kantian axiom is that which I cannot recommend to myself I cannot commend to others. Yet like many on the pro freedom wing of politics I often find myself defending the rights of smokers and tobacco companies, and other dodgy types like publicans and other alcohol pushers. So often does this happen that the bona fides of libertarian/conservative think tanks are called in question as they receive some funding from tobacco people.

A little time ago I was the voice of the EBI on RTE (briefly) attacking minimum pricing for alcohol off sales in Ireland. When in conversation with other audience members I outlined my position I and my comrade were asked if we were working for the Drinks Industry. When we said no, we were asked if they were paying us for our contribution. When we said no, we were asked why then were we saying such awful things.

The truth was that there may have been in fact dozen of paid lobbyists there that night. Paid for by a myriad of state, semi state, and state funded charities. But no one questioned their good faith. However a citizen advocating for the right of adult citizens to make choices about their own lives was an immediate object of suspicion.

I suppose considering how heavily the odds are stacked against us and in favour of the ‘experts’ we should be happy we have any private life left at all.

ps. neither I nor the EBI is in receipt of funding from the Tobacco or Drinks industry. But we would be delighted to change that status.

Just a very quick observation. As you may know the Irish government is being sued by a tobacco company over its plans to bring in plain packaging for cigarettes in Ireland.

Again and again in the media I hear and read the phrase Big Tobacco. We are informed portentously that the company in question has a market capitalisation of fifty five billion euro. Clearly this is a behemoth with unimaginable powers and must be combated.

Just once in discussions like this I would like to hear a journalist or presenter refer to Big State. But that maybe a dream too far.

….the late Christopher Hitchens being exquisitely nailed by the Maverick Philosopher. The devil may have the best tunes, but he certainly doesn’t have best arguments. Check it out among our American links. A memorable “nice one!”

So the Greek tragedy continues with all the concomitant elements of farce that are inevitably associated with human endeavours.

We wait across Europe and the trading floors of the world with bated breath to see if a last minute compromise can be delivered that will save the blushes and credibility of Alex Tsipras and still not enrage the tax paying voters of Germany Finland Austria et al.

Reports from Athens this morning all seem to be reflecting a belief across the population that the EU is engaged in theatre and posturing but will in the end give in and lift the pall of what is called austerity. They maybe right.

Or they maybe utterly deluded.

It is that side of the story which I think is fascinating and needs to be pondered. The economics and politics we will return to in the coming days. In Ireland, in Spain, in Italy and most of all in Greece we have seen the advent of new radical voices demanding a new deal and a new vision for the bailed out and the heavily indebted. They believe that if we try hard (and probably squeeze the rich) we can find a way out of this mess that will be relatively pain free.

In the West we have developed a most unfortunate inability to face hard cruel reality. Infected by the dread utopianism of Marx and other Gnostics left-wingers and soi disant progressives desperately want to believe that every situation has a possible resolution. They want to believe that there are no truly hard questions and we can all be satisfied at all times. This is true of their approach to ethics as much as economics. We can find an answer which leaves us all with clean hands. We can all be saved.

The desire to meet every desire shines through the left’s approach to bioethics, abortion, euthanasia, infanticide. It is seen in their incoherent positions on the family, marriage, surrogacy and gender. We can meet everyone’s every need without compromising the life or happiness of any one else.

But we can’t. There is no pain free path to normality for Greece. In this case there is no good out come but merely the search for the least worse. We can debate whether it is better to have deep pain and more rapid recovery or a slower more gradual return to a sustainable state. We can try to work out ways where the most vulnerable are supported. No one wants to see Venezuela in Europe. However there is no moral duty for Hans Olaf Inga or Eloise to pay for what Aristotle could never really afford in the first place.

An alcoholic gourmand with a forty fag a day habit goes to his doctor with a liver problem. He may not like what his doctor tells him and the choice he faces is a deeply unpleasant prospect to him. But after thirty years of breakfasting on brandy this is what you get. Greece is in the doctors as we speak. This is not a moral judgement on Greeks and their governments, we can have that later. This is simply an iteration of the results of the blood tests.

It is, I think, highly probable that, if any great modern nation should unanimously and wholeheartedly embark upon a thorough-going scheme of state socialism, the interests of the vast majority of individuals would be greatly promoted; they would be able to live more prosperously and comfortably with greater leisure and opportunity for higher forms of activity. It is, however, equally probable that the higher interests of the nation would be gravely endangered, that it would enter upon a period of increasing stagnation and diminishing vitality and, after a few generations had passed away, would have slipped far down the slope which has led all great societies of the past to destruction.

Today marks the hundredth anniversary of the release of D.W Griffith’s film “The Birth of a Nation.” It is at the same time both an extraordinary artistic achievement which more or less created the art form of film; and a thoroughly evil production which articulates false and pernicious ideas about race, which in its time did great damage, a cost lives in the riots that it caused. At one level it demands to be watched and admired. At another it must be utterly rejected. It is in fact a monument to the important, but frequently neglected and essentially conservative truth, that while human beings are capable of greatness, they are also deeply flawed.